The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) is a U.S. government agency created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB is the first federal agency tasked solely with the mission of consumer financial protection. To this end, Congress has vested it with enforcement, supervisory, and rulemaking authority. In an effort to stay apprised of significant industry changes affected by the CFPB, Burr & Forman’s CFPB Update will serve as a periodic briefing on recent case law, news, and developments related to the CFPB.
CFPB Granted Statutory Fees but Denied Restitution Against Financial Services Provider
Consumer Financial Protection Bureau v. CashCall, Inc., Case No. CV 15-07522-JFW (C.D. Cal. Jan. 19, 2018).
On January 19, 2018, the United States District Court for the Central Division of California held that the CFPB was entitled to recover statutory fees, but not restitution, against financial services provider, CashCall, Inc. As background, CashCall, Inc. was founded by a co-defendant in the case, Paul Reddam, to provide unsecured consumer loans. The financial crisis of 2008 severely limited the ability of banks to engage in lending activity, which included partnerships with unsecured lenders such as CashCall. Thus, CashCall ended its unsecured consumer loan business and entered the mortgage loan business. CashCall’s mortgage business was very successful, and it was ultimately sold in 2015.
Seeking to diversify its lending, CashCall was advised to become involved in a Tribal Lending Model in which a lender operating on an Indian reservation would make loans to borrowers and then assign the loan to a non-tribal financial services company like CashCall for servicing and collection. CashCall was advised that the loans would be made under the laws of the tribe and would not have to comply with licensing and usury laws in states where borrowers resided. CashCall went into business with Western Sky Financial LLC, whereby Western Sky would make loans to consumers, and after three days, these loans would be purchased by a subsidiary of CashCall for servicing of the loan. These entities created what would be called the Western Sky Loan Program. Borrowers’ Consumer Loan Agreement in the Western Sky Loan Program were told that their loans were governed by the Indian Commerce Clause of the Constitution of the United States and the laws of the Cheyenne River Sioux Tribe. The Consumer Loan Agreement also stated, “Neither this Agreement nor Lender is subject to the laws of any state of the United States of America.”
Download the full article, “CFPB Update: January 2018.”